When Can a Seller Cancel a Car Dealership-Financed Contract?
The attorneys at Liljegren Law Group have worked with victims of fraud in many circumstances. One such situation is car dealer fraud, usually wherein the dealership tells a victim that the dealership is canceling the financing contract and requiring the victim to sign a new contract. Usually these new contracts benefit the dealer. If you find yourself in a situation like this, we recommend contacting Liljegren Law Group immediately to make sure your rights are protected and the fraudulent practices of this dealership are stopped in their tracks.
What Car Dealership-Financed Fraud Looks Like
You might encounter this fraud at any dealership. The employees will offer a buyer, usually with low credit scores, financing for which the dealership intends to find a third-party to buy the contract. The buyer may also sell a trade-in to decrease the financed amount and put down a down payment. The dealership does not want to finance the car for the buyer. He or she will sign a contract to which the buyer agrees to let the dealership to do this. Under the terms, the buyer agrees that the dealership may cancel the agreement if it can’t find a vendor willing to buy the contract.
The buyer follows up with the dealer but receives no answer. Meanwhile, the dealer most likely will sell the trade-in at auction. A few weeks later, the buyer is informed the deal was cancelled because the buyer did not qualify for the initial terms. However, this only means the finance contract is cancelled. They tell the buyer a new financing contract must be signed, the terms of which will be much better for the dealer, ensuring third-party purchase of the contract.
Why This Is Fraud?
Car dealerships need to sell cars to make money. Financing car loans costs them money, which is why they work so hard to sell the contracts to lenders. This, in and of itself, is not fraud. However, some dealerships go into such an arrangement knowing that the buyer will not qualify for the terms the dealer offered to entice the buyer to buy. They also wait past the 10 days to compel you into signing a contract that includes worse terms for you, but terms the dealer knows will be accepted by third-party vendors. The attorneys at Liljegren Law Group have examined many contracts that have included this obligation, referred to as the “seller’s right to cancel.”
Additionally, California law requires that dealers exercising this right must do so within 10 days of the contract being signed. Any attempt on their part to cancel the contract after the 10th day violates the contractual requirements. Any requirement on the dealership’s part for you to sign a new contract after the 10th day is also against the law. They are required to keep the contract on their books.
Other Considerations
If a car dealership does give notice of cancellation within 10 days, and then tries to get you to agree to a new contract, carefully review the terms. If you don’t like them, reject the contract and demand your down payment back. In the case described above, the buyer sold a trade-in as a part of the deal. The buyer must receive back all the money they traded as a part of the terms; in this case, that means the seller would have to pay the buyer what it made at auction, since it can’t return the car. Any attempts to charge you for your use of the newly purchased car violates the law. You would be responsible only for damages beyond normal wear and tear as described by law.
These cases can be extremely tricky. Liljegren Law Group recommends anyone caught in this situation reach out to an attorney to make sure their rights are protected and the dealership is punished for their attempted fraud.